If you’re like me, you have many things racing through your mind. When it comes to real estate there is always so much to talk about, so today I wanted to mention a few topics I’ve been thinking of over the past week. Any thoughts? I’d love to hear your take.
Smoking Pricing Crack: Did you see that listing in Waco Texas of the property that was rehabbed by Chip & JoAnna Gaines of the reality show Fixer Upper? It was purchased for $28,000 and now it’s listed for sale at $950,000.
I’m not located in Waco obviously, but I have a feeling someone might be smoking pricing crack on this one so to speak. A quick glance at Realtor.com for listings priced at $1M in Waco shows us there are zero other 1000 sq ft 1-bedroom homes anywhere near this level. Thus let’s remember a lofty list price doesn’t necessarily have anything to do with real value. Often times prices like this are more about publicity than anything. This is true not just in Waco, but in every market in the country. However, we still have to ask, would the market pay more for a home that was rehabbed by reality stars? Or is it just the upgrades people are paying more for rather than who installed them? (Photo credit above: Realtor.com).
Era Charm: I recently appraised a house in an older neighborhood of Sacramento and ended up bringing the value in on the lower side of the competitive range. Why? Because the house lacked era charm that buyers tend to pay more for in the neighborhood.
Instead of the home having wood siding, wood flooring, and a “charming” vibe from yesteryear, it had stucco siding, cheap laminate flooring, and it stood out in a bad way because it didn’t look the same as other homes from the curb. This might sound like I’m being subjective, but the proof of a lower value was in the comps. I found a couple “vibe-less” sales and they definitely closed at a lower price tier. I also talked with the previous Listing Agent who had the home on the market before it was withdrawn. She confirmed one of the bigger issues with why the house did not sell was the lack of era charm. This is a good reminder that value doesn’t always increase just because there are newer “upgrades.” By the way, the photo above is not the house I appraised, but it’s one in Tahoe Park that sold recently from Realtor Lola Mouras (photo credit: MLS).
Blaming Appraisers: I saw an economist on Twitter recently suggest appraisers are holding back the housing market. I’m not mentioning this to call this person out or start an argument, but I wanted to pitch in some thoughts because it’s really easy to blame appraisers.
The truth is appraisers don’t make markets move up or down. Appraisers are more like a ruler to measure the market rather than a gas pedal or brake pedal for real estate values. In other words, we’ve seen massive value increases over the past 5 years, but that’s not because appraisers have driven the market up. Some of the big value drivers have been historically low interest rates, an influx of cash investors, and a shrinking housing inventory. Or right now in Sacramento we are seeing more price reductions, so is a slowing market being caused by appraisers? Nope. The market usually begins to slow at this time of year. This is exactly why I love the multi-layered real estate cake analogy because there is a recognition the market is influenced by many different factors or “layers” so to speak. I’m not discounting the reality that massive appraisal fraud can play in a market, but only saying we have to remember there are huge forces at play that are so much bigger than what appraisers are doing.
Well, that’s what’s on my mind today. I hope everyone had an incredible 4th of July. Let’s make it a great rest of the summer now.
Questions: Would you pay more for a Chip & Jo house? How much do you think era charm really matters in real estate? Do you think appraisers are holding back the housing market? I’d love to hear your take.
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Maybe that Waco house has a well in the back yard, or at least rights to subterranean deposits? Maybe that house in the second picture has had an extra 12 inches of insulation, triple-panes, latest spec HVAC,, and——-GRANITE COUNTERS!!!
But, it’s still ugly – oops, “lacking in curb appeal.”
Maybe. Maybe. There is always a story to uncover. 🙂
Great thoughts, Ryan. I too saw the story about the “Fixer Upper” home and did a double take as well. My only thing to offer was that it appeared to have a very strong rental income, most likely because of its charm and the fact that it was rehabbed and featured on Chip and Joann’s show. I would think that the income approach to value would be most relevant in the valuing this home but I’m still not sure it would reach the value they want.
Thanks Tom. That’s a great thought. I heard it was a great rental too. I mean, if I was staying in Waco, I’d love to stay at this house. I would also pay a premium to stay there too since I love Chip & Jo. 🙂
I would be very curious to analyze some of their remodels to see if any have fetched a premium. I would think most buyers would be more focused on the location, quality, and vibe of the house. I imagine the Fixer Upper factor is just icing on the cake rather than the cake.
Cost Approach, Substitution.
i suspect I could buy the lot next door and build and exact replica for under 300K:)
I love it. Thanks Dave. So if your house and the Chip & Jo house were exactly the same, would they sell for the same amount? Any premium for Chip & Jo (or Dave of course)?
OMG; it’s Waco! 300K will buy you a dream home. No skinny, barely residential lot, even next to a Fixer Upper, will bring that kind of $.
Thanks Gary. I appreciate it.
Fascinating stuff, as always. We have definitely seen more lower appraisals lately … also more listings are pressuring the counters of “no appraisal contingency” … so it’s an interesting market to be part of, and definitely much more stressful. I love your cake analogy – perfectly stated, as always. 🙂 For us too, Bay Area buyers have been a steady influx into our area – and they have seemed not have as many issues with removing more contingencies upfront, than many in-town buyers might be comfortable with … and paying over appraised value out of pocket. Things I think about often: I hope all these listing agents coaching their seller to do “no appraisal contingency” understand these long-term consequences of behaviors. I’m definitely not a fan of this behavior.
Thank you Heather. I really value your insight and commentary. I appreciate you sharing. I’m really not a fan of a market where this is a dynamic. I prefer more balance so buyers don’t have to take so much risk with removing an appraisal contingency. Granted, when a buyer has more money, it’s less of an issue, but on the lower end of the price spectrum it’s a much bigger deal because the buyer may not have the cash to come out of pocket. And yes, Bay Area buyers are a “layer of the cake” so to speak.
Thanks again. I always like hearing stories from the trenches. Anyone else have something to pitch in?
I did an interior BPO on a “No Appraisal” fair market sale last week.
I suspect it was the Buyers lender who ordered it, wanting to be sure of the value, because the buyer was surprised when I showed up (he was meeting the pest inspector at the same time.)
I liked it better when you appraiser guys took the heat from a sale valuation, not me. lol
Thanks Anne. Was this a property where there was a formal appraisal waiver? If so, I wasn’t aware a BPO would be used in the place of an appraisal. That sounds like a lot of liability. Does the lender require you to have E&O insurance? Yeah, I bet the buyer was surprised. 🙂
I was told it was a No Appraisal dealio. I carry E&O but don’t want to take the heat for bringing in a BPO that conflicts with the price – that’s your job lol!
Luckily, due to lack of competition and good pending prices nearby, the BPO came in above list price. I heard they had multiple offers so I assume it will close above list price. Unlike a past interior I completed, this one did not include a copy of the Purchase Agreement.
This is interesting to hear Anne. Thank you. I would think they are also doing an AVM or something too. They just don’t want to do an appraisal though I guess. Times are changing and this is a concern for many appraisers who are doing lender work (and even those who are watching on the sidelines).
If appraisers are able to impact the real estate market that much, then underwriters should be to blame as well. They decide ultimately whether the loan/purchase gets closed.
Thanks L Dierker. I appreciate your take. Underwriters have such an important role to play. So true.
Right now lenders have so much power. What they do in coming time can really impact the market. When you start messing with the “financing” layer of the cake by introducing more creative loan products and/or lower interest rates, it can be like a steroid for values. We shall see.
Pricing crack. I love it…Intrinsic value vs. outside influences on value. This is a prime example. Whenever someone says Appraisers are holding down values etc. I am quick to tell them this one fact…. Appraisers do not determine market value the market does! Blame the buyers not the Appraisers. It is as Simple as that. We review and analyze the market and report the facts. End of story. Love the icing on the cake analogy ?
Thanks Mary. I was hoping I wouldn’t catch flack for using this analogy. I often it when talking about overpriced listings. 🙂
I love how you said that. The market determines value. Bingo. So many people think appraisers are value dispensers. We really don’t create or give value though. We simply recognize it.
Well, it’s not the only one!
https://www.curbed.com/2017/4/11/15258350/fixer-upper-barndominium-for-sale-waco
It might just be a Waco/Gaine’s thing…
Great find Ken. I hadn’t seen that before. It looks like that one listed a few months back. I guess everyone wants to cash in on the Fixer Upper fame. Ha. I just checked and it looks like this one has been on the market at 1.2M for over 90 days now. http://www.realtor.com/realestateandhomes-detail/123-Spring-Creek-St_Waco_TX_76705_M81575-47006#photo0
I will say if these properties can rent for substantially more, they really could be worth more. Though how much more? And how sustainable is the high rent? For instance, this property you mentioned is listed on VRBO at $775 per night and it looks like it is booked 13 days over the next month. Having $23,250 in rental income in one month is no joke. I mention this because if these homes really are cash cows while this show is popular, they may be able to command a premium as rentals…..
Personally, I wouldn’t pay extra for a home flipped by TV flippers. Just because they’re on TV doesn’t mean they do a good job:
http://people.com/tv/love-it-or-list-it-hgtv-show-being-sued-for-damaging-home/
But, some people are dumb, and will sell themselves on the idea that the renovation was quality work just because they like Chip & Jo’s reality show.
Ultimately, real estate comes down to the comps, and you certainly aren’t the only person thinking this home is overpriced. Lastly, this is Waco, not New York. No one is gonna pay nearly $1M for a 1 bedroom house. Period.
Charm definitely matters for value. You hear home buyers say it all the time. Usually they call it “character.” If a neighborhood is known for it, your property better have it too, otherwise it’s simply not as desirable.
As for appraisers… I’ve had two properties come in low recently, which is definitely a bummer. But let’s face it, SOMEONE has to be realistic about the property’s value, and it really acts as a safeguard to prevent another like we just say oh so not long ago.
Thank you Wes. That’s a great link too. I appreciate you sharing that.
I will say I can understand the allure of Chip & Jo. I wouldn’t call myself a fanboy, but I definitely do like this couple for a number of reasons. Their work looks good, though I’ve never seen it up close though, and that’s what matters most.
Bummer about the lower appraisals in terms of your deals. I hope the sellers and buyers were able to negotiate. But if this is where value was, then being realistic is the name of the game. The struggle is real though here because as low inventory persists, this is only going to put more pressure on certain price ranges (which brings more competition, more offers, overbidding, etc…). It’s not always easy these days on the valuation frontier because of this dynamic.
Ryan, I love the post. What’s interesting is that Zillow doesn’t post the Zestimate on this home.
It will be interesting to follow this.
Thank you so much Jana. Hmm, I wonder why Zillow doesn’t have “Zestimates” available. I wonder if they have anything for Waco. Hmm…
I found the Zestimate. It’s a bit below the list price.
Zestimate $70,322
Wow, really? That’s unreal on so many levels.
Like three blog posts in one Ryan. I love all the stuff you cram into your blog each week. It is interesting that the economist hasn’t had time to prove that appraisers are holding the market back. It sounds like the economist is going to go out looking for data to support his feeling rather than looking at data to figure out what is going on.
Thanks Gary. Yep, three in one. I love the way you put that because it’s so easy to “prove” something if we’re looking to prove it. Yet to be fair I also understand the notion of having a theory and seeking to go about testing it. Though lately that hasn’t been happening at all in the media when it comes to talking about appraisers. It’s been an onslaught of news lately about appraisers and very few appraisers are ever actually interviewed in the stories. It’s like everyone is talking about what is going wrong in the appraisal industry without actually researching and/or hearing from appraisers themselves. It’s like big data and some other big companies are controlling the narrative and attempting to steer things to their advantage.
Love the blog and informative style. Can u chat a bit about the rental market/gouge of the Sacramento area. What I’ve seen is over the top. I want a home to call home and was a proud and conscientious homeowner for many, many years. I don’t want to buy the place for goodness sakes. Under 950 Sq ft for 2k per mo in need of repairs seems excessive. No new hi rise, etc. Saw one for 1950/mo that had so much dry rot windows and doors barely holding together. When I asked if the windows opened, the PM told me ‘if you break em, you bought em’! Is there renters relief??? Much thx. Btw…what do u think of a landlord asking for a 5 yr lease???
Hi Kit. Thanks for checking in. I appreciate the kind words too.
I think your phrase “over the top” is telling. That’s how rents feel right now. It’s just the Wild West out there. Landlords are often in tune with the market, so they are going to list their properties high and still get offers. They could advertise their properties at a lower price point or even at a level that looks like it is market value, and they’ll get 50+ applications. So there is actually more incentive for them to jack up the price and obtain a higher rental contract (and even still get multiple offers (but maybe not 50)).
I don’t know what area you are looking at, but it’s surprising how much a 2-bedroom unit can rent for at times (especially if it’s upgraded). I was talking with a landlord in East Sac recently and he was getting about $2,000 for a 2-bedroom. Wow!
The one with the windows not opening sounds like a clear safety issue. I sure hope the landlord is willing to fix that.
Is there renter’s relief? What do you mean by that?
I think a landlord asking for a 5-year lease is a sign of the times. It’s security for the landlord, though honestly it could be security for a tenant too if the tenant is bouncing all around and being kicked out of many places as rents rise and such. I have a neighbor down the street with a 10-year lease that he signed 6 years ago maybe. He’s in an incredible spot because he’s paying ridiculously low rents. Yet if the rental market utterly collapsed and he was paying way more in a longer lease, then we wouldn’t think he was in such a sweet position. So in terms of being practical I think a 5-year lease is an okay situation for the right person. But on another level it seems risky because rents are increasing at an unsustainable pace too. Moreover, it’s hard at times to be locked in to a house for 5 years these days because we never know what is going to happen in life.